Extreme Value Problems in Finance
John Paul Broussard – Ph.D. ; CFA; FRM; PRM

Studying extremes is important because extreme financial events represent the true definition of “risk.” I study extremes from a portfolio perspective because investment managers need to better understand how large financial and economic movements can detrimentally impact their portfolio.

The concept of risk has confounded participants in commerce, banking, finance, and insurance for centuries. Ever since merchants have been crossing geographic spans of land and sea to trade their goods, the potential to “lose it all” has been on the mind of those in business. My summary talk of the problems facing financial market participants will not delve too much into the historical aspects, but keep in mind problems of extreme events have faced humanity for centuries. My talk, though, only focuses on some basic applications financial market participants should consider when contemplating the potential effects of extreme events. Specifically, I will focus my presentation on the following three areas: 1) the problem of margin setting in an actively traded futures market setting, 2) the problem of setting circuit breakers in a traditional stock exchange marketplace, and 3) the problem associated with setting an appropriate spending rate at an endowment or foundation. I will not provide direct solutions to these problems, but I hope to provide additional background regarding ways decision-making professionals can consider these issues.

John is an Associate Finance Professor at Rutgers University’s Camden, NJ campus where he teaches various financial market courses. John’s academic research has been published in Journal of Financial Economics, Financial Management, Management Science, Journal of Financial Services Research, Quarterly Review of Economics and Finance, European Journal of Operational Research and other journals. John’s financial market research interests currently relate to high frequency trading, multivariate extreme statistical applications to portfolio management problems, and the behavior of various mutual fund investment strategies. His consulting activities focus on risk management matters as they apply to financial markets, as well as implementation of techniques to consistently select superior-performing mutual fund managers.

He received his BS and PhD from Louisiana State University and an MBA from Millsaps College. John has won and has been nominated for various teaching awards in his career, and has helped prepare financial market professionals for various designations since 1999 in Europe, Asia and the US. John is a CFA Charterholder, a Certified Financial Risk Manager, and a Professional Risk Manager. To know more…